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Agency agreement is defined by Italian law as a contract by which the agent undertakes to promote, on a continuous basis and for a commission (in Italian: “provvigione”), the conclusion of transactions on behalf of a principal (in Italian: “preponente”) and in a defined area. Under Italian law, transactions may be any contract (for example, concerning goods, services or any other contract) and are not restricted to sales.
Almost all relevant provisions regarding agency contracts are set out in the Italian Civil Code, in the articles from 1742 to 1753. Along the years such discipline has been deeply amended to bring it in line with European Directives.
A peculiar aspect of Italian commercial agency is the relevant role played by National Collective Agreements (in Italian: “Accordi Economici Collettivi”). Such agreements have been negotiated by agents’ and principals’ associations, in different business sectors.
A relevant role has also been played by court rulings, which - although they are not source of law in Italy - have contributed establishing an extensive body of case-law that must also be taken into consideration.
Agency contracts do not need to be in written form, therefore an oral contract would be valid. However, Italian law provides that evidence of an agency agreement may be given only in writing (written form “ad probationem”, see art. 1742 of the Italian Civil Code). Therefore, in order to prove the existence of an agency contract, there must be a written document showing the existence and the essential contents of an agency agreement, as witness can’t be used.
In accordance with Italian law, principal and agent can either be individuals or companies.
Duration of the agreement
Agency contract can be either for a fixed or an indefinite period. It should be noted that according to Italian law, an agency agreement set for a fixed period, which continues to be performed by the parties after the term expiration, is converted into an agency agreement for an indefinite period.
Under Italian law, exclusive in agency contracts is a natural element. Indeed, unless otherwise expressly provided by the parties, a principal may not appoint more agents in the same area and in respect of the same market segment, and an agent may not promote the business of competing principals, in the same territory and line of business.
Covenant not to compete
1. During the Term of the Agreement
Frequently, agency agreements set out non-competition clauses, which are deemed as valid and enforceable under Italian law and according to court rulings. Nevertheless, it must be noted that the competition would be against the general principle of the duty of loyalty and good faith, which is a typical trait of Italian contractual law.
2. After Termination of the Agreement
The parties may provide covenants concerning not-competition after termination of agency agreements (see article 1751 bis). In order to be valid under Italian law, such clauses must be concluded in writing, and related to the same geographical area, customers, and to the same kind of goods or services for which the agency agreement had been concluded. The maximum duration of such covenants is set out in two years.
By virtue of a valid covenant, the agent is entitled to an indemnity at the time of termination of the agreement. Primarily, the indemnity amount must be determined in the agency agreement and it depends on its duration, on its nature and on the amount of the termination indemnity. The rules set out in the National Collective Agreements must also be taken into account.
According to the Article 1748 of the Italian Civil Code, an agent is entitled to the commission under the following circumstances:
It should be noted that agents are not entitled to any reimbursement of expenses incurred in performing an agency agreement.
1. Formal Requirements
Italian law does not require any formality for terminating an agency agreement. Instead, the National Collective Agreements require written notice and of course, in order to prove that an adequate notice was given, and the relevant date of such notice, a written notice of termination is advisable.
2. Notice Period
In order to terminate an agency agreement set for an indefinite term, Italian law requires that the terminating party gives a notice period of one month during the first year, two months during the second, three months during the third, four months during the fourth, five months during the fifth, and six months during the sixth year and thereafter.
According to the prevailing opinion of commentators and case-law, the notice period may be replaced with an indemnity, in the event that the parties expressly agreed so.
The notice periods provided by the Collective Agreements are usually more favorable to the agents than the notice periods required by law.
Under the Collective Agreements a notice of termination may be replaced by the paying of an indemnity.
The termination of an agency agreement does not require the statement of the termination reason. The ordinary provisions on breach of contract apply to agency agreements as well, as there are no specific statutory provisions concerning termination of an agency agreement. According to some case law, however, the specific provisions concerning termination of an employment relationship for a “just cause” may apply to agency agreements too.
3. Goodwill indemnity
According to Article 1751 of the Italian Civil Code an agent may be entitled to a termination indemnity under the following circumstances:
The agent will not be entitled to a termination indemnity if:
The amount of the indemnity may not exceed a figure equivalent to one year’s commission, calculated on the basis of an agent’s average annual remuneration over the preceding five years and, if the agreement is less than five years old, on the basis of the average for the period in question.
Anyway, the agent has the right to claim damages in the event of agreement breach by the principal.
1. Law Applicable
The distribution contract is where one party (the supplier) undertakes to sell its products to the other party (the distributor) for resale purposes in a given territory.
The distribution agreement is an atypical contract, as the Italian legislation does not expressly regulate it. In fact, distribution contract has been created by commercial practice.
2. Formal Requirements
There is no specific requirement for a distribution agreement. It is valid and enforceable even if unwritten. However, a written contract is advisable.
Under Italian law a distributor may be either an independent business person or a company.
The distribution contract may be for a fixed or indefinite term.
The parties may freely agree upon clauses concerning exclusive or non-exclusive distribution rights. Often, the parties provide for exclusivity in favor of both the supplier and the distributor, so that the supplier will not appoint other distributors in the same territory and the distributor will not distribute other products manufactured by competitors of the supplier.
However, the parties may also agree upon exclusivity in favor of one party.
Without any express provision of the parties related to exclusive rights, the distribution agreement is regarded to be non-exclusive.
1. Formal Requirements
There is no formal requirement for the termination of a distribution agreement, unless otherwise provided by the agreement.
2. Notice Period
As there is no specific statutory provision regarding notice of termination, it is advisable that the length of the notice and its related matter are determined by the parties in the agreement.
Anyway, in the case that the agreement is set for an indefinite period of time and the parties did not provide for a termination notice, a party may terminate the agreement by giving a “reasonable” termination notice to the other in any case. Similarly, in the event that the termination notice is deemed unfair (in light of the duration and nature of the contractual relationship), Courts consider that, in spite of the contractual provisions, the terminating party cannot invoke the forthwith enforcement of the (unfair) termination contractual notice as it should, in any event, give a reasonable termination notice to the other party.
In order to assess the fairness of a notice term, the Courts usually take into account the duration of the agreement and the general commercial practice in the field of business. Usually, the termination notice period ranges between six and twelve months.
The consequences of a termination notice deemed as not “reasonable” is that the party to which the notice has been given will be entitled to damage restore.
Unless otherwise agreed by the parties, a fixed-term distribution agreement can only be terminated by one party where the other party has committed a serious breach of a material contractual obligation. In the absence of such a breach, a notice to terminate a fixed-term agreement would be invalid and the terminating party would be exposed to liability for contractual breach with damages.
The distribution agreement may also contain a specific “early termination clause” (pursuant to Article 1456 of the Italian Civil Code) detailing each of the serious breaches that would entitle one of the parties to immediately terminate the agreement by simply sending a notice of termination.
3. Liability of Supplier on Termination
Generally, in the event of contract termination with due notice or upon expiration no compensation is due.
However, In the case of an unlawful termination, the distributor may claim a compensation for damages suffered as a consequence of the termination, as it would happen to any other contract under general provisions of the Italian Civil Code.
In particular, the compensation should cover both the actual damages and the loss of profits (it should be noted that Italian law does not provide for punitive damages).
4. Return of Products
As seen above, there is no statutory provision also concerning the return of products on termination. However, the parties are free to include, and often do, an obligation on the supplier to buy back a reasonable stock of unsold products.
Any claims of distributor and supplier related to distribution contract are subject to the ordinary limitation period of ten years provided by law for contractual claims (see Article 2946 of the Italian Civil Code). However, any claims related to outstanding payments that are due annually or more frequently must be brought no later than five years (see Article 2948 of the Italian Civil Code).